Tax Incentives for Migrants with Mid-Level Earnings

The paper presented in this Mannheim Applied Seminar examines how income taxes affect international mobility and wages of migrants. The authors study a Dutch preferential tax scheme for migrants, which introduced an income threshold for eligibility in 2012. The threshold is low relative to similar schemes in other countries, thereby offering eligibility to migrants with mid-level earnings. They find that migration in the income range closely above the threshold more than doubles, while migration below the threshold remains unchanged. These effects appear to be driven by additional migration, while wage bargaining responses are limited. They conclude that the reform of the tax scheme effectively attracts more migrants.